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Commodities and Precious Metals Update (Week ending August 14 , 2020)

Posted:
Topic: Gold , Commodities
Publication Type: Market Commentaries

Key points

  • Energy prices all moved higher last week. Natural gas and gasoline prices increased the most, each rising about 3.5%.  WTI crude oil prices increased 2%. 
  • Grain prices, too, all moved higher. Corn prices increased the most, gaining almost 5.5%, followed by soybean prices which rose 3.5%  
  • Copper was the only base metal that saw its price increase last week. Copper prices rose about 2.5% while aluminum and zinc prices decreased about 1.5%
  • Gold, silver and platinum prices all fell last week with gold retreating a little over 4%. Silver prices lost 5.5% and platinum prices fell about 3%.
  • The Bloomberg Commodity Index rose once again last week, increasing 0.51%. The energy and grains sectors were primarily responsible for the increase offset by negative performance in the precious metals sector.
  • For the first time in a while, commodity ETP assets decreased, falling $535.6m.    Gold ETP outflows were primarily responsible followed by crude oil ETP outflows.  ETP Inflows included precious metals (ex-gold and silver) ($102.5.m) and agriculture ($85.0m).  Crude oil ETPs had $83.7m outflows.

Commentary

A somewhat choppy week for U.S. stock markets with the S&P 500 Index striving for but not reaching record highs on Wednesday. Despite stronger-than-expected U.S. economic reports (including lower-than-expected weekly jobless claims, strong retail sales and industrial production reports) and a falling number of new Covid-19 cases and deaths, U.S. stock markets struggled to move higher last week.  Concerns surrounding the legality of President Trump’s  executive orders combined with still-stalled congressional coronavirus-related stimulus negotiations and, perhaps, higher-than-expected PPI, CPI and wage inflation numbers may have limited stock market gains.  The 10-year U.S. Treasury rate moved higher all through the week, reacting to corporate and government supply pressures, higher-than-expected inflation numbers and strong U.S. economic reports. At week’s end the S&P 500 Index increased 0.6% to 3,372.85, the Nasdaq Composite index increased 0.1% to 11,019.30, the 10-year U.S. interest rate increased 14 bps to 71 bps and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 0.4%.

Oil prices moved higher last week supported by a larger-than-expected drop in U.S. inventories, strong China demand and the EIA’s higher price and lower production forecasts despite lower demand projections from both the IEA and OPEC.

Gold prices fell sharply on Tuesday reacting to both Russia’s Covid-19 vaccine announcement and a much-higher-than-expected PPI number.  Silver prices followed suit, falling almost 11%.    Though pressured by stronger-than-expected U.S. economic reports and increasing U.S. Treasury rates, gold prices and especially silver prices (silver prices recovered almost half their Tuesday losses by the end of the week) moved off their Tuesday’s lows supported by continued coronavirus concerns and unprecedented U.S. monetary stimulus measures.

Copper prices moved higher last week supported by much-larger-than-expected China imports.  Higher through Wednesday, base metal prices moved lower the remainder of the week pressured by Congress’ lack of progress in a coronavirus-related stimulus package and concerns over U.S.-China trade talks scheduled for the weekend.

Damage assessments following Monday’s derecho storm in the Midwest pushed corn and soybean prices 3% -4% higher Thursday offsetting higher yield and harvest WASDE forecasts released on Wednesday.  Strong export numbers to China also supported soybean prices.

Coming up this week      

  • Another relatively light week heavy on housing market data and including the release of FOMC minutes and the PMI Composite Flash Index.
  • Housing Market Index on Tuesday.
  • Housing Starts on Wednesday.
  • Jobless claims, Philadelphia Fed Business Outlook Survey and the Fed Balance Sheet on Thursday.
  • PMI Composite Flash and Existing Home Sales on Friday.
  • EIA Petroleum Report on Wednesday and Baker-Hughes Rig Count on Friday.

Jeff has over 20 years experience working as a trader, structurer, marketer and researcher. Most recently, Jeff was the Chief Investment Officer for Rich Investment Services, a company which created, listed and managed ETFs. Prior to Rich Investment Services, Jeff headed the New York Commodities Structuring desk at Deutsche Bank AG. From 2004 to 2007, he headed the marketing and structuring effort for rates based structured products at BNP Paribas in New York. He worked at AIG Financial Products from 1994 to 2004 trading rates-based volatility products as well as marketing and structuring. Jeff received his MBA in Finance from NYU Stern School of Business and his Bachelors of Science in Chemical Engineering from Purdue University.

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